Oil prices jump 15% following drone attack on Saudi facility

Oil prices surged more than 15 per centat the open on Sunday onworries over global supply and soaring tensions in the MiddleEast. State oil giant Saudi Aramco said a drone attackon Saturday had cut output by 5.7 million barrels per day.

U.S. President Donald Trumpsaid on Sunday that the United States was "locked and loaded"for a potential response to the attack on Saudi Arabia's oilfacilities, after a senior official in his administration saidIran was to blame.

He said he had also authorized the use of the U.S. emergencyoil stockpile to ensure stable supplies after the attack, whichshut down 5 per centof world production.

"Based on the attack on Saudi Arabia, which may have animpact on oil prices, I have authorized the release of oil fromthe Strategic Petroleum Reserve, if needed, in ato-be-determined amount sufficient to keep the marketswell supplied," Trump said.

Aramco gave no timeline for output resumption. A sourceclose to the matter told Reuters the return to full oil capacitycould take "weeks, not days."

Traders and analysts said crude may spike to as high as $100 (all prices in US dollars)a barrel if Riyadh fails to quickly bring back supply.

Another source briefed on the developments said Saudi oilexports would continue to run as normal this week thanks tolarge storage in the kingdom, the world's top oil exporter. Itships more than 7 million barrels daily to global destinations.

It was last at $60.89 a barrel while Brent crudewas up 13 per centat $68.06 after earlier rising to $71.95. In addition to massive supply disruptions, the attacks alsoheightened investor worries about the geopolitical situation inthe region and worsening relations between Iran and the UnitedStates. Those concerns powered safe-haven assets with prices forgold climbing 1 per cent in early Asian trade to $1,503.09.

Riyadh said it would compensate for the damage at itsfacilities by drawing on its stocks, which stood at 188 millionbarrels in June, according to official data.

The Saudi bourse closed down 1.1 per centon Sunday, with bankingand petrochemical shares taking the biggest hit. Saudipetrochemical firms announced a significant reduction infeedstock supplies.

"Abqaiq is the nerve centre of the Saudi energy system. Evenif exports resume in the next 24 to 48 hours, the image ofinvulnerability has been altered," Helima Croft, global head ofcommodity strategy at RBC Capital Markets, told Reuters.

'Risk of conflict'

Kuwait, which borders Iraq, said it was investigating thesighting of a drone over its territory and co-ordinating withSaudi Arabia and other countries. The Cabinet said the primeminister ordered tighter security at vital installations.

Regional tensions have escalated since Washington quit aninternational nuclear deal and extended sanctions on Iran.

UNSecretary-General Antonio Guterres condemned Saturday'sattacks and called on all parties to exercise restraint andprevent any escalation.

The European Union warned that the strikes posed a realthreat to regional security, Britain called them a "recklessattempt" to disrupt global oil supplies and France said suchactions could only worsen the "risk of conflict." Iran's allyTurkey called for the avoidance of "provocativesteps."

The attack came after Trump said a meeting with IranianPresident Hassan Rouhani was possible at the UNGeneralAssembly in New York this month. Tehran ruled out talks untilsanctions are lifted.

But Trump appeared on Sunday to play down the chances hemight be willing to meet with Iranian officials, saying reportshe would do so without conditions were not accurate.

Saudi de-facto ruler Crown Prince Mohammed bin Salman toldTrump that Riyadh was ready to deal with "terrorist aggression."A Saudi-led coalition has responded to past Houthi attacks with air strikes on the group's military sites in Yemen.

The conflict has been in military stalemate for years. TheSaudi alliance has air supremacy but has come under scrutinyover civilian deaths and a humanitarian crisis that has leftmillions facing starvation. The Houthis, more adept at guerrillawarfare, have increased attacks on Saudi cities, thwarting peaceefforts.